Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

Q1 2009 Earnings Call Company Participants
• Michael J. Cavanagh, Chief Financial Officer

MANAGEMENT DISCUSSION SECTION
Operator
Good morning, ladies and gentlemen. Welcome to the JP Morgan Chase first quarter 2009 earnings call. This call is being recorded. Today's presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JP Morgan Chase management and are subject to significant risks and uncertainties. Factors that could cause the firm's actual results to differ materially from those described in the forward-looking statements can be found in the firm's filing with the Securities and Exchange Commission and you're referred to these filings. The firm's filings with the SEC are available on both JP Morgan Chase and the Securities and Exchange Commission's website. JP Morgan Chase does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. Please also note today's presentation may include references to non-GAAP financial measures, and you should refer to the information contained in the written slides accompanying this Web presentation for information about their calculation. These slides are available on JP Morgan Chase's website. Your line will be muted for the duration of the call. We'll now go live to the presentation. You will hear silence for a moment. Please stand by. At this time I would like to turn the call over to JP Morgan Chase's Chairman and Chief Executive Officer, Jamie Dimon, and Chief Financial Officer, Mike Cavanagh. Mr. Cavanagh, please go ahead.

Michael J. Cavanagh, Chief Financial Officer
Good morning, everybody. Thanks for joining us here. So let's jump right into the slide presentation that hopefully you all have in front of you. So I'll start with some of the key points off the highlights that you see on page 1. So starting with overall profit number, $2.1 billion or 40 cents earnings per share in the quarter. That's on record firm-wide revenues of $27 billion or so and record quarterly pre-tax preprovision profits of about $13.5 billion. I wanted to make one point up front on the changes in accounting rules, so there's essentially no impact from the accounting rule changes on fair value accounting or impairment. So we had no P&L impact. No P&L benefit and no improvement in capital through the OCI account from any of those rule changes in the quarter, just to be clear.

Page 1 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

What went on to generate those results, we're going to see business by business in a second but obviously an outstanding quarter in the Investment Bank with record profitability. And also the WaMu integration really benefiting the retail banking business which you'll see in a few slides further back. On the balance sheet, we feel very good about the strengthening of our balance sheet. So with $87.2 billion of tangible common equity up a couple billion dollars from last quarter, obviously on these earnings and with the benefit of retaining capital after reducing our dividend. That amounts to 7.2 aren't of risk weighted assets so the component of tier one capital made up of tangible equity all by itself exceeds the 6% well capitalized level of which preponderance is intended to be common equity. So we feel great about the capital position, and then including preferreds tier one capital is 11.3%. If you were to exclude the TARP capital at 9.2%, and remember we always guided and managed towards an 8 to 8.5% type level. So at these high levels we feel very good about the capital position of the company. Lastly here, we added $4.2 billion to the allowance for loan loss reserves. Total is at $28 billion. Coverage ratio to loans of 4.53%. You'll see some staggeringly high coverage ratios when you go through the businesses with the Investment Bank nearing 6% so obviously strong reserves. The backdrop there, you'll make a comment there you'll see net charge-offs did worsen in the quarter but in line with what our expectations were back in investor day and our forward view where losses go from here is upward but again consistent with, generally consistent with what we were talking about last time. So now moving on, I'm going to skip page 2, which I just referred to all the important numbers. So now let's dive into the Investment Bank on slide 3. So here again you see the extremely strong results we had in the Investment Bank in the quarter. Record net income, you see it circled of $1.6 billion on record revenue of $8.3 billion. Walking down some of the lines here, you see that we had Investment Bank fees of $1.4 billion up year over year on the strength of the very strong quarter in debt underwriting. And that fee number 1.4 billion is number 1 On The Street in fees earned for the quarter. And, again, you'll see on the next slide the outstanding lead table standings we have across our corporate finance franchise. Moving down, you see fixed income markets, $4.9 billion of revenues. That does include 400 million or so of benefit due to firm -- our spread widening. But even net of that we cleared the previous record quarter by a wide margin. And those results really coming across the board with record results in credit trading emerging markets and rates also very strong currencies, commodities and so forth. We had markdowns. And you'll see the slides here on our risky assets of about 700 or so million on the legacy leveraged loan commitments. That includes some markdowns on our auto positions. There are also auto markdowns and reserve builds in other parts of the Investment Bank results here. And in addition, in fixed income markets, about 200 or so million dollars of markdowns related to the mortgage positions, which you'll see in another slide or two. Moving on to equity, record -- again, record revenues of $1.8 billion, that includes about 200 million of spread widening benefit. But still the 1.6 all by itself that would be left still a record result, and that's coming across the board, cash, derivatives, and prime services, where we are gaining, continue to gain share in these businesses across the board. Seeing the benefits of everything we've done, including the benefit of the Bear merger coming through. Moving on to credit costs out of revenues. You see we had $1.2 billion of credit cost in the Investment Bank. Virtually all of that was reserve building. Just $36 million or 21 basis points of actual losses in the quarter. And as I said earlier, the loan loss coverage ratio here, 6.68% in the first quarter of reserves to loans. So an outstandingly high number that we haven't seen before. And that is it for the investment bank's P&L. Now let me move on and you see on slide 4, you can read this for yourself, but it just demonstrates the outstanding performance in our corporate finance franchise as you look down the page and see us maintaining very, very high rankings across the board in investment banking. Slide 5 just gives you a recap where we're getting to the level now in our investment banking risk exposures we talked about that are getting to be much less noteworthy than when we started doing this but nonetheless let me just touch on them.

Page 2 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

So we markdown our leverage loans by another 700 million in the quarter. That leaves us with $11.5 billion of face value commitments from a peak of $44 billion when you include what we took on from Bear Stearns. Those loans now marked down by $6 billion or 52% to a carrying value of $5.5 billion. So on average 48 cents on the dollar. Moving to slide 6 you have our mortgage-related exposures in the Investment Bank. And here as we've said before, I'll just point out, this is everything that we have in these mortgage categories, including both what is our ongoing sales and trading inventory in these businesses as well as our legacy assets. So when you look at the table in the upper left, at the bottom, you see the circled numbers that exposure is down by $2 billion in the quarter to 12.7 billion or about 14% in the quarter. Again, no impact from the fair value accounting changes here. So if with that $2 billion of exposure reduction, 1.8 billion was sales activity sold at or around our marks and the remaining 200 of reduction was the markdowns that I described. Moving on now to slide 7, we'll shift gears to Retail Financial Services. So you start at the top. These are some of the key drivers of what drives the P&L we'll look at in another second. So $346 billion of deposits, obviously up dramatically year over year on the benefit of having the WaMu transaction done. The WaMu balances just to note deposit balances remaining stable, despite the fact that we continue to not be a price chaser on deposits. And so overall deposits up 2% for the whole business, with stability in WaMu. And then when you look down some of these other statistics that show activities through our branches, we continue to invest in the branches and so you see the sales activity in checking accounts, 25 million in checking accounts now up about half a million accounts just in the last quarter alone. And then great growth in credit card sales, mortgage originations through the branches. Consumer lending at the bottom you see in these categories they show here a total of $46 billion of loan originations in the quarter for total Retail when you include small business, which is in the retail banking segment. We had more than $60 billion of originations of loans, new loans extended. More than 150 billion in the quarter for the firm, including the commercial side. Obviously mortgage loan originations down themselves year over year and up quarter over quarter at $38 billion. And that both reflects the benefits of the refi activity offset in part by our moving away from the broker channel on a risk basis. Auto share going up with six billion of originations there. So we'll come back to credit stats in the consumer lending side in a minute. But let's first go now to slide 8 and look at the P&L for Retail Financial Services for one second. So if you look at on the left side, you've got the circled numbers show overall profits in retail of $474 million. And that breaks down to profits of nearly 900 million in the retail banking side up 300 or so million from last year and a $389 million loss in the consumer lending side. So just talking through those a bit. In retail banking, profits up dramatically. Again, that's on revenues of $4.3 billion in total. The big drivers versus a year ago being the benefit of having the WaMu deal done, plus wider deposit spreads and higher fees in the system there. A little bit of addition to credit costs and reserves on the business banking portfolio that's in retail banking, and then expenses a little bit of growth there. That includes, and you'll see this in many businesses so I'll just mention it once, the higher fees we're paying for FDIC insurance premiums. In consumer lending, the loss that's on $4.5 billion of total revenue, again, WaMu transaction being the biggest year-over-year change. In addition, in the quarter we had a billion dollars of MSR risk management results and some wider loan spreads on the mortgage lending activity. Credit costs is a big story, though, in consumer lending. You'll see that on a few slides. But the one thing I'll mention here of the total 4.2 billion reserve adds at the firm 1.6 billion relates to this consumer lending activities shown here in total.

Page 3 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

So now let's go to a few of the big portfolios as we usually do. Start with home equity on slide 9. So again what you're looking at here is the total I'll just note that all these slides exclude WaMu credit impaired loans which that portfolio behaving in line with our expectations so there's been no impact on our results related to the marked portfolios we took on from WaMu in the quarter. So focusing on what's aside from that the non-credit impaired loans, here you see in the upper right Box 112000000000 or so end of period portfolio down a bit from last quarter. So this will be trending lower over time. Charge-offs of just about $1.1 billion in the quarter. Obviously up dramatically from last quarter. But in line with the expectations we talked about going back to Investor Day. Down at the bottom, no real noteworthy comments on where the losses come from that are different from before or our tightened underwriting standards. And in terms of guidance, again, we'll likely start to see this increase maybe by a couple hundred million dollars into next quarter trending towards a level as high as $1.4 billion per quarter, which is consistent with what Charlie talked about at Investor Day. . Moving on now to slide 10, prime mortgage. So here's a smaller portfolio that's concentrated in a few more recent vintage years. $65.4 billion of balances, about flat to last quarter. Again, in the upper right. Dollar charge-offs in the quarter $312 million, up again from last quarter. And then down at the bottom, our guidance here is losses could be as high as $500 million over the next several quarters coming up. And that's at the high end, a touch higher than the high end that we talked about at investor day of $475 million. In sub prime, then, on slide 11, not much new here at all. It's a run-off portfolio. The 15.3 from last quarter trending down to just under $15 billion. $364 million, dollar charge-offs and that's going to be in this range that we talk about at the bottom of 375 to 475 million in the coming quarters. Completely consistent with what we talked about at Investor Day. WaMu integration now on slide 12 to finish up Retail. I said earlier that we're doing fine on the stability of deposit balances here. And then just a major phase of getting WaMu fully integrated by the end of the year, a big -- I get to use pictures for the first time in one of these -- you see the pictures at the bottom showing the rebranding we did just last weekend of all of our branches in California. And then continue to be on track with the cost saves that we talked about, substantial cost saves, higher than what we originally modeled in the deal nearly $3 billion, offset in part by substantial investments in salespeople, the facilities coming over from WaMu, and so forth, of nearly three-quarters of a billion dollars. So continue to invest and grow in this franchise, and it's performing well for us in the overall P&L as well, in line with our expectations in terms of its income contribution in Retail. Moving on to slide 13, credit card. I'll remind you here. This business includes the run-off WaMu sub prime card portfolio in the overall business here in the P&L. But when I talk about all the statistics, I'll focus on the legacy Chase, the core Chase portfolio for consistency sake. But overall a loss of $547 million. Just moving down to some of the circled numbers in the key stats again for Chase alone. You see we had $150 billion of end of period oustandings, about flat year over year, and down a touch seasonally as you would expect quarter over quarter. Total sales volume on cards obviously coming down in this environment, but we believe we're gaining share. So 16% decline quarter over quarter. 9% year over year. The share gains coming from our focus on partner programs and reward activities that, again, we talked about on Investor Day. So those 2 Things Combined Drive the $5.1 billion of revenues you see at the top. But what's really driving, again, the bottom line is credit costs. So total credit costs inclusive of WaMu $4.7 billion in the first quarter. That includes a $1.2 billion addition to loan loss reserves. Charge-offs themselves, and I'll talk Chase only, 6.86% charge off ratio in the quarter up from last quarter, and just inside of the 7% for first quarter guidance that we gave going back to the beginning of the year at Investor Day, and that Chase alone number. Again, as we look towards the end of the year will follow where unemployment goes and just as a for instance, you've got to pick that, but as a for

Page 4 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

instance we said if we end the year at 9% unemployment, we would expect that we could be in a Chase charge-off range of nine to 9.5% and move up 200 basis points from where we are in this quarter to the second quarter. WaMu itself will go up from levels more in the high teens to low 20% rates from where they are now, which is around 12% because it's still benefiting from some purchase accounting. Commercial Banking, now on slide 14, here you see profits of $338 million. That's our return on equity is 17% in the quarter where we're starting to get back to more normalized charge-off rates of 48 basis points over all added over $100 million to loan loss reserves in the Commercial Bank bringing total loan loss reserves to $30 billion and coverage ratio of reserves to loans of 2.5 nine%. Balances, liability balances at 114 -- 115 billion in loans and leases at $114 billion, together driving revenues of $1.4 billion. I will just note that inside the revenues for the quarter in the Investment Bank noninterest revenue, so what we get from fees of all sorts, non-lending and non-deposit related revenues are at a record level. So we've always talked about the importance of making this a deep share of our customer's activities, including fees. And so I feel good about the revenue line in the business. A little bit off from last quarter on decline in spreads and some of the deposit products. Moving on to slide 15, treasury and security services. Here we had net income of $308 million, down 28% year over year and down substantially quarter over quarter. I'll take to you the liability balances, the deposit balances, you'll see the circled numbers, $277 billion. That's off from the fourth quarter levels, where we saw the very high activities in terms of client deposits coming in in the fourth quarter, given all the market turbulence at the end of 2008. So as that's come off, you see that flowing through the revenue side across both pieces of the business here. Assets under custody, about flat quarter over quarter. And so when you get then to revenues of $1.8 billion, down close to 20% quarter over quarter, the big driver of that is in the security services. So the securities lending businesses. And so there we both had activity levels and spreads and securities lending come off as those business activities for the market have eased off the levels they were running at and then together with the lower liability balances, lower deposit balances I just referred to and lower spreads in a low interest rate environment gets you to that level of revenues. Just a little guidance on where to go from here. We would expect that this level or plus or minus two billion of quarterly revenues in treasury and security services is a reasonable expectation given what we've seen in this first quarter here coming out of the end of last year. Slide 16, let's go to Asset Management. Starting here really with assets under management $1.1 trillion down a little bit. Market declines driving assets under management down to close to $200 billion but positive inflows of $120 billion year over year offsetting that in part. Albeit in greater balance of liquidity projects which are obviously lower margin. That gets you then to the 10% year-over-year declines in revenues to $1.7 billion, coming off of everything that I just said and that drops you down to net income for the business of the $224 million here. That you see here. Finally on the income statement we have the last piece which is on 17, the corporate segment. So here you see we had losses, bottom line losses of $280 million in private equity. That's on $462 million of write-downs in the quarter. Our corporate segment, $252 million of profit. Obviously there's lots of ins and outs in corporate that I won't go through. I'll just say that we expect that to trend higher going into the second quarter by a few hundred million dollars given the benefits that will accrue from the investment portfolio, which is obviously larger, as we talked about at investor day. And then lastly we run our WaMu and Bear Stearns-related merger costs which are in line with what we expected through the corporate segment here, and that's $234 million after tax or about six cents that's embedded in our 40-cent overall profit number. So 46 cents before the cost of the merger-related items. Now moving on and just recapping again on capital, slide 18. Here you see the $87 billion of tangible common equity up several billion dollars from last quarter as the circled number. Above that is 112 billion is what we have given the preferreds we have outstanding in qualified trust preferreds that are normally there. And then if you -- and that's again ex-TARP it's 137 billion with TARP. When you move down to the ratios, I've already hit these, but it's 11.3% tier one ratio in total. 9.2% just using the non-TARP related tier one and 7.2% in tangible common equity to risk weighted assets.

Page 5 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

And then finally I'll just show you, again, the loan loss reserve build which is obviously large numbers here. So 27 billion of loan loss reserves to loans, up $20 billion from $7.3 billion to two years ago, end of first quarter of '07. Obviously you see that in the green stacked bars on the total bar on these slides, coming up from left to right in the upper half. You see the line showing how we've been improving the loan loss to reserve to loans ratio, which is now standing at 4.5 three%. And as we move through the credit cycle, you see in the blue bar, in the top table, our NPLs as we move through a cycle coming up just therefore the massive to reserved NPL ratio trending lower, now sitting at 241%. In the bottom right you can look at this yourself, but you see -- sorry, bottom left, you see how we stack up at the end of last quarter versus peers. So we obviously feel very strongly reserved when you look at the peers here. So finally, then, outlook slide, I think I hit basically everything that's on here already. I will just point out that we in the overall box in the bottom right we do have ahead of us in the latter part of the year an FDIC assessment coming that's still being finalized. But that can be in the range of three-quarters of a billion to a billion and a half dollars, on top of the actual ongoing FDIC charges, which are higher all by themselves year over year and already running through our first quarter numbers. So with that, I will hand it over to Jamie or actually we'll just open it up for questions. Operator.

Q&A
Operator
[Operator Instructions]. Your first question comes from the line of Guy Moszkowski with Bank of America. <Q>: Good morning. Question for you, first of all, just on TARP. Now that Goldman Sachs has raised capital and signalled that they very much want to repay the TARP capital if permitted, maybe you can update us on your thinking along the same lines. <A>: So I think we've been fairly consistent in TARP, which is we'd like to repay it as soon as possible. We're waiting for guidance from the government of the United States. We want to do it in the interest of the United States, in addition to in the interests of JP Morgan. And obviously we have the wherewithal. Mike mentioned we have 7.2% tangible common equity risk weighted assets. That's a higher number than a lot of people have tier 1 capital to risk weighted assets, which is now over 9%, not including TARP. So that 9% and 7% wouldn't change if TARP were repaid. Obviously we're in a pretty strong position with that, and we don't think we need more capital. So we obviously will await the results of the stress tests and guidance from the government and see what happens. <Q>: So, again, to clarify, you don't believe that in order to repay it you would need to do an equity issuance? <A>: I don't know what we need to do, because it may not be solely up to us. I don't think we need it. <Q>: Okay. A much more technical question -<A>: I don't see why a company with that kind of capital would have to raise capital. We could raise it. And what Goldman did is what Goldman did. It has nothing to do with us. <Q>: Let me ask something that's sort of much more granular. Your equity VAR was up very substantially versus any of the recent prior quarters. Maybe you can give us a sense for what was driving that. <A>: Okay. So you all know that -- I don't pay that much attention to VAR, but a lot of that is just hedge positions. <Q>: So it doesn't -- it doesn't signal a big significant increase in equity derivative exposure or anything like that? <A>: No. <Q>: Okay.

Page 6 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

<A>: I mean, if you look at the balance sheet of the Investment Bank, it's about the same size as it was before we bought Bear Stearns. And I would say the real risk is lower because the legacy loans are dramatically lower, mortgage stuff is dramatically lower. And so it's in pretty good shape. <A>: Not down year over year but down something like 15% quarter over quarter. So it continues to be a focus. <Q>: Just a clarification question on the FASB comment you made. You said that there was no change because of change in fair value from FASB. Is that because you didn't adopt it for the first quarter, or because there really was just fundamentally no impact on your business? <A>: It's the latter. Fundamentally no impact. <A>: It was adopted and it had no impact. The whole thing was a big hullabaloo about nothing, in my opinion. <Q>: I don't disagree with that. Maybe you can talk a little bit about your auto industry exposure in the Investment Bank and elsewhere to the extent that, say, you bank suppliers in the Commercial Bank and how you are reserved or marked depending upon what's relevant to your exposures to the industry. <A>: Okay. So the three auto companies, direct exposure -- remember, I think Mike mentioned it in the quarter obviously there were both reserves and marks in the quarter and in prior quarters relating to auto. But if the three companies, our total exposure -- in other words, how much can we possibly lose at the far end? It would be well less than a billion dollars. We have exposure to the finance companies, mostly collateralized. We could lose money there. It really depends. And there the situation gets bad under Chapter 7s, not under Chapter 11s, but it really remains to be seen what it does. It's cloudy. We can lose money there. But we'll see. Obviously we have exposures to suppliers, both in the Commercial Bank and in the Investment Bank. But they're within -- you're basically already seeing a lot of that stress in the balance sheet. <Q>: That's fair. Can you talk about the NCO rate for the -<A>: Guy, maybe you should let someone else ask a question, too. <Q>: Okay. I will.

Operator
Your next question comes from the line of John McDonald with Sanford Bernstein. <Q>: Thank you. Thanks, Guy. Wanted to just ask about credit card. The 9% charge-off rate guidance for 2 Q my understanding is just a guess. Is it based partly on your roll rates and delinquencies or also really just more about assumptions about unemployment and perhaps some decoupling? <A>: It's a lot less than a guess because we really do have visibility into the quarter already. It's based upon real roll rates and real delinquencies. <A>: Beyond that, you've got to make your own assumption about where unemployment goes, and you can just go back, the point I was making about the latter end of the year is we showed a bunch of different relationships of where our losses might be on the Chase portfolio relative to unemployment, and so that stands. But as Jamie said, about 200 basis points of increased quarter over quarter for chase is what we can see looking at the second -<A>: If I were you I would just plug that into my model. <Q>: Okay. What is it about the WaMu card book that is so much worse? <A>: It's sub-prime. And it's part of the cost of getting the WaMu deal. And that's our expectations for it. <Q>: Okay. Are there any concerns in Card about master trust, excess spreads hitting either cash trapping or early am triggers in your trust or if there is any remaining WaMu trusts?

Page 7 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

<A>: We're not immediately concerned about that stuff, John. Paying attention to it, but not an immediate concern. <A>: Fixable if we want to. <Q>: Okay. And last thing on Card, are the effects of any repricing you've done already in your numbers in Card, or is there any benefit ahead for the net interest margin there? <A>: I think you should expect the net interest margin to be approximately the same going forward. And there's been some repricing, but it's not going to have a dramatic effect. <Q>: Okay. Thanks.

Operator
Your next question comes from the line of Michael Mayo with CSOA. <Q>: Good morning. The comp to revenue in the Investment Bank seemed kind of low. Should we assume that will be the rate going forward? <A>: No, we don't accrue comp to revenue, comp as a percent of revenue. It's accrued kind of by line of business risk adjusted and capital adjusted and all that. And that was the number. If it was higher or lower that would be fine with us, but if you look at the actual accrual amount, it was pretty high. <Q>: No change in pay practices or anything like that? <A>: No, no. It's just the first quarter. Obviously you don't pay comp until you get to the end of the year. <A>: Comp to revenue is just an expression of the outcome, Mike. It's not the driver of how we think about it. So consistent to the way we've done it before, and it's a strong quarter like this, the percentage comes out the way it did. <Q>: Okay. That's fine. And then the credit card losses, I asked this at the Investor Day, is it going more nonlinear relative to the increase in unemployment in certain markets, like in California? And how non-linear is it getting? <A>: I don't know about nonlinear, but in any market where unemployment is up, actually we had charts at the analyst meeting for this. You should take them out. I think they're approximately the same today as it was then, that wherever unemployment goes up, charge-offs are going up. Wherever home prices go down, charge-offs are going up. And where both are happening, charge-offs are going up even more. <Q>: Okay. <A>: If you do like a correlation, they both -- they would be directly related unemployment home prices, too. So it's kind of hard to tease them out. But charge-offs in Card are clearly higher than you would expect just based upon unemployment, and that's because of housing. <Q>: Okay. Last question, foreclosure moratorium, can you give any kind of concrete information on what impact that had or maybe just qualitative and the impact that might have going forward, the lifting of the moratorium? <A>: If you look in prime mortgage, distorted delinquencies a little bit. But we're actively trying to use -- we're going to try to do the mod program. It's really hard to tell, Mike, I think it's a good thing for the country to go ahead and do that but we don't exactly know what the impact will be. Obviously it will be more foreclosures going forward. But there will also be a lot more people who are able to do a modification or a refi. <Q>: Thank you.

Operator

Page 8 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

Your next question comes from the line of Meredith Whitney with Meredith Whitney Advisory Group. <Q>: Good morning. I have one question, actually two questions. One is separate, which is could you elaborate on your MSR assumptions that caused you to have a gain this quarter, and then my next question is on sub-prime. Do you want me to ask them all at once? <A>: Let me do MSR real quick. First, we think we like to be fairly consistent with how we do stuff. We feel we're fairly conservative in MSR, too. But in general overtime sort of prepayment fees have slowed and home turnover has gone down a little bit. Not a little bit, I think it's gone down a lot. It's things like that. Obviously there's a lot of things that model. We don't expect to see a billion-dollar benefit every quarter on the risk, what we call the risk management side of the MSR. But the MSR is a real earning asset. <Q>: Specific to sub-prime, your guidance in sub-prime has been in line. And my question is: You guys are running off the Providian portfolio, HSBC has shuddered their business and seems to be no lending for the sub-prime sector does that squeeze then alter some of your assumptions and some of everyone's assumptions in terms of setting up for another leg down in sub-prime, and then what derivative impacts does that have on or could that have on the prime market? <A>: Relative to us alone, it's really not that big a deal, okay, because sub-prime is $13 billion in mortgage and the whole Providian book is $26 billion. So, remember, Meredith, I think that happened a year ago that sub-prime markets were in essence closed down. So I think you're seeing the full effect of the impact of that now. <Q>: Okay. <A>: Which I think we've been more on track there with forecasting. <Q>: Okay. And then the last question is: And forgive me if you already mentioned this, do you expect to be profitable in Cards this year? <A>: No. <Q>: Thank you. <A>: And that's not news. We've said that before.

Operator
Your next question comes from the line of Betsy Graseck with Morgan Stanley. <Q>: Hi, good morning. Couple questions on NIM, nice expansion in the quarter. How much of that was driven by LIBOR versus Fed funds normalizing? <A>: You know, I'd point, overall we're just getting comments on NIM, get a little bit of spread compression and deposits in some of the businesses and then the benefit of the larger investment portfolio. So just benefiting from a low interest rate environment there. That's the aggregate story, continues to be the story looking ahead for at least a little while until we have a different view on rates. <A>: And year over year was pretty much the addition of WaMu, big difference. <Q>: Right. Okay. And then on capital ratios, I mean, in the past diversified business models have benefited from, you know, an expectation that there's less correlation and so you can carry less capital than maybe stand-alone peers. I'm wondering about the degree to which that thought is under debate in rating agencies and internally in your shop, given the correlations have obviously been higher than what people have anticipated. <A>: So I think we're different than most, because we've always looked at -- we want each company to be properly capitalized. And we didn't in effect subsidized any company by looking at the whole company. And the whole company itself wasn't leveraged. So we don't expect our positional change very much going forward.

Page 9 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

<A>: And, remember, we also targeted as I said earlier a tier one ratio of 8 to 8.5 well above the 6% in light of times could get tougher. And so had some of the pro cyclicality some of that stuff taken out by ourselves and also we were very conscious of how much we wanted to rely on other than tangible common equity as a source of regulatory capital think about the 15% bucket for trust preferreds as an example of something that we availed ourselves of but not much more. Which is why you see such a strong quality of our capital today. <A>: And, Betsy, I think it's fair to say that there would be less leverage in the financial system going forward in general. That would be true for diversified companies and less diversified companies. <Q>: How are you thinking about the PPIP and other bad asset vehicles that are out there, and would you be interested in either using them as a seller or an investor? Or how are you thinking through whether or not you're going to use them? <A>: We have no intent on using PPIP at all. We don't need it. We have our own assets. If we want to sell them, we'll sell them. We mark them properly. If we want to buy them, we'll buy them. We're certainly not going to borrow from the federal government because we've learned our lesson about that. But I do think that if a PPIP is properly executed it could be good for the system because it could give some prices to certain loans and help some companies do things they might not otherwise have been able to do. But I don't think in and of itself is that critical to the success of all the programs that the treasury is doing. If you look at the programs in the treasury and Fed and the stimulus package, there's an extensive amount of programs. That's only one of them. <Q>: Just last question. Cost of debt relative to precrisis times. <A>: I would just point out, too, I don't think toxic assets is the problem. We hear this endless chatter about it. But the banks who are in business are lending. They're lending pretty much like they did in the past. Obviously there are banks not in business. Banks have always had a portion of assets and nonperformers something like that, obviously those proportions would be going up. But also I remind people banks are 25% of the system they're not 100% of the system and the rest of the system is hedge funds and money market funds and bond funds and pension plans and insurance companies and direct investor invest in consumers, and that's where you have this enormous flow of funds taking place, which is very different than you had 50 years ago. <Q>: So how do you think about getting the cost of debt down for the company? I mean TLGP is going to end soon, if it doesn't get extended. <A>: Remember, TLGP had asymmetric benefits for people. And when that all happened, I would say that some people couldn't fund at all and were able to. And some people were able to fund a lot cheaper than they were able to fund. It wasn't a lot cheaper. I think maybe 100 basis points. <A>: In the short end, our issuances, getting -- it's come in a lot relative to what unguaranteed issuance -- what unguaranteed issuance would be versus guaranteed, obviously. <A>: So our cost would be 100 basis points higher or something like that. And we get an unguaranteed deal and those markets will come back eventually. You've seen January, February, March, were some of the biggest bond markets ever, which includes now high yield debt, Double B, Single B. Some high IPOs. And the capital market will eventually get healthy again, people will finance. <A>: Doesn't mean necessarily spreads will come back all the way to where they were, but we don't necessarily need or expect that to happen. <Q>: Okay. There's nothing you're doing outside of running your business in the way you're running it to address that spread? <A>: No, because it's not that big a deal for us. Betsy, we have a trillion dollars of deposits and $700 billion of loans. So if our non-deposit costs go up a little bit it's just how you price or manage stuff going forward. But I would say it's not a tremendous deal for us. It could be a tremendous deal for some other people. They either won't get the money or

Page 10 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

it's going to cost them 500 basis points more. And that basically eliminates profit. <Q>: Okay, thanks.

Operator
Your next question comes from the line of Jeff Hart with Sandler O'Neal and Partners. <Q>: Hi guys. The one credit piece we seem to be perpetually questioned about that I don't know if I've seen much here, I was hoping you would give us more color on, I know this is a big bucket, but what you're seeing in the commercial real estate markets for credit quality. <A>: So in the big picture it isn't a big deal for us either. So I think -- and we've given this number at Investor Day, was it $12 billion in total? <A>: 7 billion or so from legacy Chase and we picked up another five or so from WaMu in construction, in commercial. <A>: Right. And I think in general -- and there the losses are going up. And I think if you talk about the whole system, I think in my opinion you're going to see rapidly rising charge-offs in real estate loans. It will be idiosyncratic, because all banks do it differently and have different standards and they even define them kind of differently. We also had the middle -- the multi-family lending or losses which is like over $30 billion out of WaMu, losses are extremely low. I would completely separate that. I would expect those losses to go up. But they're not going to be nearly on the category of commercial real estate. <A>: So a lot of it is going to be when you look at commercial what's the mix. So as we've talked about, that total is a little bit. 14ish billion so the loss rates are trending higher but probably not as high as some of the weakest lending into that space. So that is something to be watchful of. But I think it's our size and mix that's the reason we feel good. <Q>: Okay. And on the mortgage servicing rights questions that pop up, am I reading it correctly to say that you had a billionish dollars in hedging gains but that essentially offset what were the marks to the actual asset itself? <A>: No, we had a net billion-dollar gain on the actual management of the MSR that will not repeat. <Q>: Okay. <A>: It's the net of us hedging the expected change in the asset, however you want to say that. <A>: You've seen that. It's a very volatile number by quarter. Obviously it's been a positive recently. But we don't expect it to continue. <Q>: Right. I want to make sure I was thinking about it correctly. Thanks, guys. <A>: Yep.

Operator
Your next question comes from the line of Chris Katowski with Oppenheimer. <Q>: I wonder if you could comment a little bit on the sources and perhaps durability of the strength and fixed income in trading, and I guess I'm thinking about in terms of volume versus market share, versus spreads. <A>: Right. So I think the first thing to point out is the Investment Bank, both on the corporate finance side and the sales and trading side has been doing extremely well. And some of that is really just gaining share. It's hard to tell your gain in share in the short run of fixed income, et cetera. Very good results, emerging markets, FX, currencies. Obviously the corporate bond business has come back in a big way. Primary [indiscernible] is back in a big way. So we

Page 11 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

think -- and spreads are way up. So spreads are way up. Volumes have gone up. People obviously still need the services. So we think we've gained share. I wouldn't expect to see them at these high levels continuing to go forward. I think the first quarter was a historically high quarter, and if you were looking at it, it's not reasonable to expect it to continue at that level. But we hope the share we've gained we're going to halt. <Q>: And then just as a follow-up to that, how do you look at reserve adequacy now? I mean, in the last cycle we looked at reserve to non-performing loans, this is a much more consumer-driven kind of cycle so nonperforming loans don't pile up in the same way and should we look more at reserve to run rate of charge-offs, something like that, and how do you assess the adequacy and just given that incredible strength in fixed income trading, why not pop everything into the reserve for this year so far? <A>: You mixed a whole bunch of things in there. But we added four billion in reserves. A billion of that was in the Investment Bank and remember the Investment Bank you had a billion dollars of reserves and a billion dollars on loans and mortgages. And they had but a billion dollar gain in DVA. You add it all together. Underlying trading was even better than what you've seen here and on their own. But, look, we reserve each book of business according to accounting rules for that book of business, and in general, on the consumer side, if you're looking forward, expected losses over the next 12 months. Eventually they will peak but they've been going up consistently. We've shown you here they're going to go up even more, they're going to continue to go up in all the home lending areas, mortgage and home equity, and credit cards are going to continue to go up. As long as they continue to go up, row serves will probably have to be added too. Once they stop going up you won't have to add to reserves any more. That will be a joyous quarter. It may happen sooner than you think. And it may take a little longer. <Q>: All right. Thank you.

Operator
Your next question comes from the line of James Mitchell with Buckingham Research. <Q>: Good morning. Quick question on the Investment Bank balance sheet. Average balance sheet was down 130 billion or 16%, was that sort of the repo book, or was there anything more significant going on there? Obviously it's historically, as you pointed out, Jamie, an active quarter, would it surprise it went down as much as it did? <A>: I don't know which number you're looking at, James, but if you look at adjusted assets taking out the matchbook, you're down quarter over quarter 14% I think it is. So it's the combined set of activities making sure we're getting paid for the risks we take and discipline and manage the balance sheet and getting the Bear balance sheet integrated, all those factors drive quarter-over-quarter decline and back to levels -<A>: I think conservatively down 30 billion, too. Remember, that bounces all over the place. <Q>: Right. Fair enough. And maybe just following up on the reserve question. Understandably you guys, it's formulaic today. As loss rates go higher you add to reserves. But I've asked this question before, it's a bit of a pet peeve. But at what point do law of large numbers start coming into play and while it's great to have great big reserves you're also taking after tax a billion of common equity putting it into reserves you won't be able to use until things get better. At what point is there some push-back with regulators hey it doesn't make sense for shareholders to be adding when you have over 30 billion in reserves? <A>: Listen, you made the point as well as anyone can make it. At one point it's sufficient. I think loan loss row serving as a matter of policy really needs to be reviewed in the future. It's very pro-cyclical. It doesn't in my opinion match revenues and expenses. But a lot of it recognizes real losses that are coming. So but at one point those loan loss reserves will come down. We agree with you as a policy matter it needs to be reviewed. It's not up to us, the market looks right through it. <A>: That's why it's important to look at the quality of your capital in light of the quality and size of the loan loss reserve relative to forward exposures.

Page 12 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

<Q>: Fair enough. Just was wondering if there was any kind of elevated discussions going on about your criticism and my agreement on the reserving policy with regulators. <A>: No elevated conversations. I wouldn't expect to see much take place at least in the short run. <Q>: Fair enough. Okay. Great. Thanks.

Operator
Your next question comes from the line of Jason Goldburg with Barclays Capital. <Q>: Good morning. I don't know if you can do it specifically but if you can't at least high level can you update us with respect to these stress tests in terms I suspect you've given something to regulators, have you heard back? When do you think you'll hear back and what do you disclose, et cetera. <A>: We kind of know what you know. We're not going to -- we haven't heard back from the government. They're targeting towards the end of the month, as you read in the papers, and that's kind of where I'd leave it. We talked about our Investor Day our own stress work, which is we talked about put us in good stead, maintaining our capital at levels like we currently have on the back of earnings and profits, even in our own scenarios. And I still feel good about our own scenarios for what they were having done all the work involved in submitting our government stress tests. So that's where I'd leave it for now. But as Jamie said, we've got to wait to hear what the government thinks of it, all things considered on their side, in a few weeks, I gather. <Q>: Okay. And then with respect to credit card losses I guess you mentioned going 9% in the second quarter and in the guidance toward the end of the year was 9 to 9.5%. So you get a 200 bip jump next quarter and a much slower increase after that. <A>: Right now it looks like it will creep up from there but we really don't know because we don't have that much visibility. Particularly like in the third or fourth quarter. <Q>: Okay. Thank you.

Operator
Your next question comes from the line of Matt Burnell from Wachovia. <Q>: I have a quick question, clarification on your prime portfolio where the losses are obviously coming from California and Florida. We're hearing anecdotally there may be some bottoming in the California markets. I'm wondering if you're seeing any of that in your prime or home equity portfolios? <A>: There is no question that the home markets are much more active in California, that affordability to pay is at all-time records there. The home prices are already down 40 or 50%, depending what market you're in. And we know from our own experience that homes are moving much faster. There are more bids on them. The prices are much closer to the offer price. So those are all very positive signs in California. But we don't -- we'll see what actually happens to home prices over time. <Q>: It sounds as if those activities are not really impacting your view of losses in those portfolios over the next couple of quarters. <A>: No. Because, remember, a lot of those losses, I would say, are almost embedded home prices are down 40, 50% and unemployment is going up. So some of those losses are embedded. Obviously, the sooner the home prices stabilize, the better it will be for losses, home lending portfolios. <Q>: Thank you.

Page 13 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

Operator
Your final question is a follow-up question from the line of John McDonald with Sanford Bernstein. <Q>: Just a quick follow-up. On the equity markets revenues, can you comment how much the strength in the jump in revenues was attributable to the prime brokerage ramp or versus just a strong quarter? <A>: It was pretty much -- it was spread across all pieces, John. So prime services did improve some, but it's not the totality by any stretch of the revenue increase. <A>: Remember, year over year we didn't have it last year. And we really don't talk about this a lot. But the Bear Stearns equity business was very strong, and it also helped us on the cash equity side and prime broker side where we think we've gained share, if you look at all the tech numbers and stuff like that, somewhat off of back of Bear Stearns, too, obviously strong on the equity derivatives side. <Q>: One quick purchase accounting question, Mike, on WaMu, are you already experiencing charge-offs and provisioning for the non-credit impaired WaMu loans or is there some priming benefit to having recently tested those for credit impairment, even though they weren't credit impaired? <A>: I would say it's actually in the home lending side it's just low levels of losses, period, as we showed at Investor Day just given that anything that was low quality was put into credit impaired and marked. So you have just have a much higher credit quality in mortgage and so forth that stayed in the accrual books. And then in Card, as I said, you do have, because of the quick revolve of the balances you take the losses in the initial purchase accounting there. But as I said, normalized, this quarter we had about 12, 13% charge-off rate on WaMu cards. That benefits the last quarter a little bit of benefit of booking losses up front. So that normalized would have been more like 16, 17%. That's why next quarter it will be something like 18% on that $26 billion alone, which is mostly the benefit of initial purchase accounting going away. <Q>: Okay. Thanks. <A>: Yep.

Operator
And there are no further questions. <A>: Guy, you don't have any more questions you want? <A>: Okay. Thank you, everybody. <A>: Thank you.

Operator
This concludes today's conference call. You may now disconnect. This transcript may not be 100 percent accurate and may contain misspellings and other inaccuracies. This transcript is provided "as is", without express or implied warranties of any kind. Bloomberg retains all rights to this transcript and provides it solely for your personal, non-commercial use. Bloomberg, its suppliers and third-party agents shall have no liability for errors in this transcript or for lost profits, losses, or direct, indirect, incidental, consequential, special or punitive damages in connection with the furnishing, performance or use of such transcript. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of Bloomberg LP.

Page 14 of 15

Company Name: JPMorgan Chase & Co Company Ticker: JPM US Date: 2009-04-16 Event Description: Q1 2009 Earnings Call

Market Cap: 122,350.70 Current PX: 32.56 YTD Change($): +1.03 YTD Change(%): +3.267

Bloomberg Estimates - EPS Current Quarter: 0.339 Current Year: 1.478 Bloomberg Estimates - Sales Current Quarter: 23284.917 Current Year: 94784.385

© COPYRIGHT 2009, BLOOMBERG LP. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited.

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